NVIDIA Stock Needs a Game Changer

NVIDIA has to know that it's making a big mistake, but with NVIDIA stock approaching its summertime highs, maybe it's letting swagger get in the way of good judgment.

NVIDIA is now taking pre-orders for its handheld gaming device for June delivery. NVIDIA Shield -- a high-end Android gaming system -- is hitting the market at a lousy time.

NPD Group just reported on Thursday that video game hardware sales plunged 42% in April. The weakness stems primarily from the larger consoles as diehard gamers wait for new platforms to roll out later this year, but handhelds are also getting smoked as consumers rely on smartphones, tablets, and iPod Touch devices for their casual gaming needs.

This week's release of the quarterly App Annie & IDC Portable Gaming Report shows that gaming-optimized handhelds -- primarily Nintendo's 3DS and Sony's PS Vita -- fell sharply during the first three months of the year. Sure, there's a seasonal slide to factor in here, but holiday quarter activity was also pretty lousy. More importantly, the popularity of iOS and Google Play activity is on the rise.

NVIDIA bulls will argue that this favors the chances of Shield's success. It feasts on Google's Android operating system and relies on Google Play for digitally downloaded diversions. However, the analog controller gives it more of a traditional console gaming feel. That's going to make the gaming experience a lot more enjoyable, but it also speaks to the device's shortcomings before we get to the sticker shock deal breaker. The reason why iOS and Google Play are so popular is that they're easily accessible on the smartphones, tablets, and portable media players that folks already own. They don't want to carry around a dedicated gaming device, and that's why the 3DS and PS Vita are fading fast.

Then we get to the $349 price tag. It's a safe bet that most of the Android-based gaming is taking place on far cheaper gadgets. Shield's specs are impressive. The five-inch HD display and powerful NVIDIA Tegra 4 processor will turn heads. However, at the end of the day, NVIDIA Shield is an overpriced throwback gaming device with high-end features. There is a market for that, but not much of a market.

NVIDIA stock doesn't need a hit, but at a time when analysts see revenue and earnings inching lower this fiscal year, it certainly wouldn't mind one.

Unfortunately, the NVIDIA Shield is no hit.

NVIDIA was ahead of the curve launching its mobile Tegra processor, but investing gains haven't followed as expected, with the company struggling to gain momentum in the smartphone market. The Motley Fool's premium report examines NVIDIA's stumbling blocks, but also homes in on opportunities that many investors are overlooking. We'll help you sort fact from fiction to determine whether NVIDIA is a buy at today's prices. Simply click here now to unlock your copy of this comprehensive report.